403 P.3d 587
Ariz. Ct. App.2017Background
- Victor Leija, a window washer, died after a scaffold collapsed; his family received workers' compensation benefits from Twin City Fire Insurance Company.
- The Leijas sued multiple third parties (including the City of Glendale) and recovered $1,600,000 in settlements; some settlements did not exhaust all available insurance layers.
- Twin City claimed a statutory lien under A.R.S. § 23-1023(D) against the third-party recoveries for benefits it paid and sought reimbursement and future credit.
- The Leijas sought reduction of the lien based on the employer's comparative fault and sought a judicial proceeding to determine damages and apportionment; Twin City sued to enforce its lien.
- The superior court granted summary judgment to Twin City on most claims, denied a trial to determine employer fault for lien apportionment, and rejected Leijas' contract/bad-faith claims and their motion to add The Hartford as a defendant.
- The court of appeals reversed in part: it held the Leijas are entitled to a trial to determine damages and employer comparative fault for equitable apportionment of Twin City’s lien, but affirmed dismissal of bad-faith and breach-of-contract claims and denial of leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a worker who settles a third-party claim for less than available insurance can obtain judicial determination to reduce a workers' compensation carrier's lien to account for employer comparative fault | Leijas: Settlements that reflect employer fault should allow equitable apportionment of the carrier's lien under Aitken | Twin City: Settling does not entitle Leijas to a later apportionment; trial to allocate fault would be a sham or collusive | Court: Remanded — Leijas may obtain a fair adversarial proceeding to determine damages and employer fault for equitable apportionment under Aitken |
| Whether a workers' compensation carrier owes a duty of good faith to negotiate or compromise its lien to account for employer comparative fault | Leijas: Carrier must fairly value lien and consider employer fault; refusal to do so breaches good-faith duty | Twin City: No duty to compromise lien absent adjudicated damages and employer fault; statutory lien protects carrier | Court: Affirmed summary judgment for Twin City — no duty to compromise lien in these circumstances |
| Whether Twin City breached a contractual promise to reevaluate or compromise its lien after settlement | Leijas: Twin City promised to resolve the lien later and induced settlement | Twin City: No such promise; consistently stated unwillingness to reduce the lien | Court: Affirmed summary judgment for Twin City — Leijas did not present evidence of a promise |
| Whether denial of leave to amend to add The Hartford was erroneous | Leijas: Late discovery of Hartford's role justified amendment | Twin City: Amendment would be prejudicial and dilatory | Court: Affirmed denial — district court did not abuse discretion given delay, prejudice, and futility |
Key Cases Cited
- Aitken v. Industrial Commission, 183 Ariz. 387 (A.Z. 1995) (establishes equitable apportionment of carrier lien to avoid employer benefiting from its own fault)
- Grijalva v. Arizona State Compensation Fund, 185 Ariz. 74 (A.Z. 1996) (rejects use of collusive summary proceedings to defeat lien rights)
- Boy v. Fremont Indemnity Co., 154 Ariz. 334 (A.Z. 1987) (insurer compromise of lien not an expected contractual benefit to employee)
- Stout v. State Compensation Fund (Stout I), 197 Ariz. 238 (A.Z. Ct. App. 2000) (carrier not required to compromise lien when settlement is at policy limits and employer fault not shown)
- Stout v. State Compensation Fund (Stout II), 202 Ariz. 300 (A.Z. Ct. App. 2002) (disapproves of secret or sham procedures to determine employer fault to affect lien)
- Weber v. Tucson Electric Power Co., 202 Ariz. 504 (A.Z. Ct. App. 2002) (allows apportionment of lien where employer fault and damages were fairly and adversarially determined)